Bond with the present value of the future cash flows

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Reference no: EM131298243

a. A bond that has?$1000 par value? (face value) and a contract or coupon interest rate of 9 percent. A new issue would have a floatation cost of 6 percent of the ?$1351 market value. The bonds mature in 9 years. The? firm's average tax rate is 30 percent and its marginal tax rate is 32 percent.

b. A new common stock issue that paid a ?$1.20 dividend last year. The par value of the stock is? $15, and earnings per share have grown at a rate of 8 percent per year. This growth rate is expected to continue into the foreseeable future. The company maintains a constant? dividend-earnings ratio of 30 percent. The price of this stock is now ?$23 but 7 percent flotation costs are anticipated.

c. Internal common equity when the current market price of the common stock is ?$43. The expected dividend this coming year should be ?$3.50increasing thereafter at an annual growth rate of 9 percent. The? corporation's tax rate is 32 percent.

d. A preferred stock paying a dividend of 9 percent on a ?$100 par value. If a new issue is? offered, flotation costs will be 15 percent of the current price of ?$172

e. A bond selling to yield 10 percent after flotation? costs, but before adjusting for the marginal corporate tax rate o 32percent. In other? words,10 percent is the rate that equates the net proceeds from the bond with the present value of the future cash flows? (principal and? interest).

Reference no: EM131298243

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